Carbon tax increase to yield €623m in 2023 for climate actions

Budget 2023: Large increase in funding for energy efficiency and retrofitting of houses announced

The Government has gone ahead with plans to increase carbon taxes by €7.50 per tonne of carbon used, resisting pressure to postpone fossil fuel tax rises due to the energy crisis.

However, Minister for Public Expenditure Michael McGrath emphasised that all carbon tax revenues would be ploughed back into cutting the State’s CO2 emissions, especially by funding the retrofitting of tens of thousands of homes.

The rate per tonne of carbon dioxide emitted for petrol and diesel will go up from €41 to €48.50 of CO2 equivalent from October 12th – which confirms a trajectory set out in law to ensure it reaches €100 by 2030. This will result in an increase of just over two cent VAT inclusive per litre of petrol and diesel.

However, Minister for Finance Paschal Donohoe said he recognised “the sharp cost-of-living challenges currently being faced by society”, so the Government will offset this carbon tax increase by cutting the National Oil Reserves Agency levy to zero.

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The levy, which is collected at a rate of 2 cent per litre (VAT exclusive), would help offset the carbon tax increase, which means that prices at the pump would not go up as a result of taxes or levies, he said.

“Additional funding needed for measures, such as retrofitting and more sustainable modes of travel, comes in part from carbon taxation, and this is appropriate and will continue under this Government,” he added.

Farmers face major difficulties with rising costs, while also facing demands to move to a more sustainable agriculture. Consequently, five agricultural reliefs that were due to expire this year will survive, while farmers will be given accelerated capital allowances to build modern slurry storage tanks to help the drive to more environmentally friendly farming.

Mr McGrath underlined the need to reduce dependence on energy imports “by becoming more efficient in how we use energy and especially by accelerating the shift to renewable energy”.

An extra €850 million worth of capital spending will be enjoyed by the Department of the Environment, Climate and Communications in 2023. Some €337 million of this will pay for energy efficiency grants to better insulate 37,000 homes that are in – or at risk of – energy poverty.

New low-cost loans will be offered for residential retrofits, too. “Every additional euro raised in carbon tax will be returned to the people of Ireland through energy efficiency upgrades, social protection schemes to protect the most vulnerable, and measures to incentivise farming in a more environmentally friendly way,” Mr McGrath said.

An additional €211 million will be made available in 2023, bringing total carbon tax revenue available for investment to €623 million. “Almost half of the €623 million in funds raised by the carbon tax will be invested in improving energy efficiency of our homes,” he added, while it will fund €218 million of social protection spending in 2023.

In all, €81 million of the funds raised by carbon taxes will be spent on supporting 50,000 farmers to improve biodiversity, air and water on their farms.

Meanwhile, the National Development Plan offers €3.5 billion to the Department of Transport for a series of projects, including €2.6 billion for BusConnects, MetroLink and the Dart+ programme. “This investment in our transport network, the reductions announced in passenger fares, and the continued roll-out of electric vehicle grants will greatly assist us in meeting our ambitious climate targets,” Mr McGrath said.

The new Maritime Area Regulatory Authority, “a key enabler in respect of Ireland’s ambitions in the offshore renewable energy sector”, has been allocated €4.3 million

Mr McGrath is to continue talks with the construction industry about cleaner, greener building methods.

Minister for Climate Eamon Ryan will fund the installation of solar photovoltaic (PV) panels on every school in the country, funded by the Department of the Environment’s Climate Action Fund.

Kevin O'Sullivan

Kevin O'Sullivan

Kevin O'Sullivan is Environment and Science Editor and former editor of The Irish Times